Tax reform's pass-through provision

One of the biggest tax breaks in the Tax Cuts and Jobs Act is the 20% deduction for business income from "pass-through" companies—a provision that Jeff Brooks, Senior Wealth Strategist with the UBS Advanced Planning Group, calls a gift from the government for many tax filers.

Pass-through income refers to qualified business income from a company—such as a partnership, an S corporation or a sole proprietorship—that gets taxed once at the owner's individual rates, rather than through the corporate tax structure. At a 37% top federal tax rate, the 20% deduction approximates a 29.6% marginal federal rate. However, Brooks notes that not everyone will qualify for the deduction, which is due to sunset for tax years beginning in 2026.

As tax filers begin looking ahead to preparations for a new tax year, we examine: Who gets to take advantage of the deduction? What counts as "qualified" business income? And what are some key limitations in this provision that taxpayers should know about? Find out in an in-depth conversation with Brooks and UBS On-Air Host Anthony Pastore, the latest installment in our "Tax reform and you" podcast series.

You'll learn:

As a result of this new deduction for pass-throughs on qualified business income, investors should consult with their tax advisors to see if they could take advantage of the provision for their pass-through businesses. In addition, investors in states with higher state income-tax rates, together with their tax advisors, may want to consider whether they should reorganize their business.

Are you prepared for the new rules under tax reform? Together we can find an answer. Connect with your UBS Financial Advisor or find one.